How to read an interest-only mortgage
See the payment before and after the reset.
1
Enter the loan amount
Use the full balance that will remain at the reset.
2
Set the interest-only period
Use the number of years before principal payments begin.
3
Compare the payments
Check that the reset payment fits the budget with a margin for rate changes.
What does this tool do?
During the interest-only period the balance does not fall, so the later payment must amortize the full loan over fewer months. This calculator shows the size of that step-up.
The Formula
Interest-only payment = Balance × Rate ÷ 12; the reset payment amortizes the balance over the remaining termFrequently Asked Questions
Does an interest-only loan reduce the total cost?
Usually not. Paying no principal keeps the balance high and can increase lifetime interest.
What happens at the reset?
The payment is recalculated over the remaining term. A longer interest-only period leaves fewer months and a larger payment.